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Rhode Island’s pension fund earned just 1.4 pecent in fiscal 2012

December 7, 2012

Rhode Island’s $7 billion+ pension fund — which is banking on an expected rate of return of 7.5 percent to pay its long-term obligations — earned just 1.4 percent over the fiscal year that ended June 30.

State Treasurer Gina Raimondo, who chairs the state Investment Commission and sparked the move last year to lower the pension fund’s expected rate of return, says she doesn’t think the state’s expected 7.5 percent rate of return is too optimistic. In an interview, she said:

“It’s important to realize that investments for pension funds and assumptions for investments for pension funds need to be looked at over the long term. There’s a great deal of volatility.

So, for example, if you had picked the one year period from the beginning of October 2011 to the beginning of October 2012 it would have been 8.5 percent. So it’s actually quite dangerous to look at anyone 12-month period, because as you know, there’s a lot of up and down in the market.”

Fiscal years are a commonly used measure for comparing the performance of public pension funds.

Raimondo says “the right way” to look at the pension fund’s performance is over a long period and looking forward.

The treasurer spoke hours after a hearing in which Superior Court Judge Sarah Taft-Carter heard opposing arguments about a state motion to dismiss a union-backed challenge to last year’s landmark pension overhaul. It’s not clear when Taft-Carter will decide the motion. Today’s hearing marked an early skirmish in what promises to be a prolonged legal fight.

Raimondo says Rhode Island’s expected 7.5 percent return on the state pension fund is at “the high end of the reasonable range” considered by state investment advisers and actuaries, “but it was a reasonable number.”

Rhode Island’s 1.4 percent return for fiscal 2012 was slightly better than the 1 percent earned in 2012 by the California Public Employees’ Retirement System, although CalPERS’ target for growth was a modest 1.7 percent, according to the Los Angeles Times.

Raimondo says the state’s 10 year return is about 7.9  pecent and the 15-year return is about 5.53 percent.

WPRI’s Ted Nesi reported in January that Rhode Island’s pension fund earned a 1.4 percent return for 2011. As Ted has noted, investment expert Allan Emkin is more skeptical about the Ocean State’s ability to reach its investment goals.

8 Comments leave one →
  1. Patrick permalink
    December 7, 2012 9:44 pm

    Dear Mr. Valletta,

    Are those books still being cooked by the Treasurer when she lowered the expected rate of return to 7.5%? Still think that action was irresponsible?

  2. Art permalink
    December 8, 2012 2:25 pm

    Damn, sign me up for any plan that can give me a 7.5% return on my money.

    The likelihood of that high return is very doubtful, and further reason why the pension reform legislation must not be overturned in court.

    With governments at every level taxing more and spending more, taxpaying citizens will have little recourse but to revolt.

  3. mainliner permalink
    December 8, 2012 3:21 pm

    Cooking the books may be good analogy – certainly political gain is another. Rates for long term activity are significantly different than the every day rate that most people see in their bank accounts – Particularly during times like this. Note that Treasurer did not give the rate of return for June 2011 which is not posted on the website and are reported to be over 20% – following 2010 which had a return of 13%. So the sky is not falling. The rates can be volatile but if one is considering a liability over 30/40 years one should be comparing rates over a similar period. Not selective time periods that can provide manipulated data. Look at the State website – the average return since 1984 is approximately 10%. If one expect rates to trend down continually in the future one can plan for that.. it is called smoothing and is historically done via the actuarial analysis… Disclosing a potential problem is prudent – creating a false panic is not. The real problem has not been addressed despite the excellent PR campaign being waged by our politicians – private pension plans that were not funded by politicians when they were contractually obligated to do so.

  4. Al Moncrief permalink
    December 8, 2012 5:38 pm


    The Colorado Court of Appeals has reversed and remanded an initial District Court ruling that denied the contractual status of public pension COLAs in Colorado. The Court of Appeals confirmed that Colorado PERA pension COLA benefits are a contractual obligation of the pension plan Colorado PERA and its affiliated public employers. A huge victory for public sector retirees in Colorado! The Colorado Legislature may not breach its contracts and push taxpayer obligations onto the backs of a small group of elderly pensioners. The lawsuit is continuing. Support pension rights in the U.S. by contributing at Friend Save Pera Cola on Facebook!

    In 1977, the (U.S.) Supreme Court clarified that state attempts to impair their own contracts, ESPECIALLY FINANCIAL OBLIGATIONS, were subject to greater scrutiny and very little deference because the STATE’S SELF-INTEREST IS AT STAKE. As the court bluntly stated:

    “A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a state could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all . . . Thus, a state cannot refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”

  5. December 8, 2012 10:55 pm

    Nice scoop Ian!

  6. Mister Guy permalink
    December 9, 2012 9:38 pm

    “Raimondo says the state’s 10 year return is about 7.9 pecent and the 15-year return is about 5.53 percent.”

    The historical RI state retirement system rates of return numbers are all over the place, and they depend highly on how one tries to calculate them. The actual, yearly rates of return for the RI state retirement system have ranged from around -20% to around +19% between 2001 & 2010. I’ve seen five, ten or fifteen year rates of return quoted as being anywhere from around 2.5% to as high as around 11%. These kind of silly media stories about retirement system rates of return are all about political PR…nothing more, nothing less.


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